Tag Archives: sba.gov

10 Business Plan Myths That Hurt Your Business

Business Mistakes, business plan,

The need for good business planning is as strong as ever, and the potential benefits are as important as ever. Every business owner ought to have a business plan. But the best strategies for business planning are different than they used to be. And these 10 pervasive business plan myths get in the way, much too often.

This post includes the 8 business plan myths that I listed on my March 2 post on the SBA Industry Word blog, plus two others that weren’t included.

Why does it matter? Because business planning, done right, is a management tool that can help you steer your business.

1. A business plan has to be long (false)

Not necessarily so. A business plan can take whatever form is most useful, even if that’s just a few lists and tables.

2. A business plan is hard to make (false)

It doesn’t have to be. List your key strategy points and key tactics, and a few important major milestones (like deadlines, tasks, the new launch or new website, and necessary hires). Include projected sales, costs, expenses, and cash flow. Voila! You have a business plan.

3. Nobody creates business plans anymore (false)

Well-run businesses use business planning the right way. They keep a simple, lean plan up-to-date and refreshed. The review and revise it monthly. In straw polls I’ve taken for years at management workshops, the best 20% or 30% of the companies represented have a management process that includes a lean business plan as well as regular reviews and revisions.

Smart startups use basic business planning to help them see starting costs, projected early sales and spending, cash flow, and key strategy points and milestones before they launch. Then, they review these monthly.

4. Business plans are for only startups (false)

True, well-run startups generally use business planning to help figure out which steps they need to take, and which resources they need. But that doesn’t mean mature businesses can’t use business planning to constantly set milestones, strategy reminders, and forecasts. Mature businesses keep a business plan up-to-date, and review and refresh it often. The more a business grows, the more it can benefit from good business planning.

5. You can’t plan because change comes too fast (false)

In the real world, a good business plan manages change. It isn’t voided by change. You keep the plan current by making revisions as real events unfold.

It’s like dribbling in basketball: if you plan to go a certain direction, and the other team blocks you, then you go a different way. Having a plan means that you’ll have the information you need to make quicker, easier, and more natural revisions.

6. Forecasts are useless (false)

Forecasts are almost never accurate. But having a forecast gives you a tool to instantly compare what you expected to what actually happened (we call that plan vs. actual analysis, or variance analysis). Then you make business decisions to adopt to change.

Are sales better than expected? Then you look at the causes, and adjust marketing and other expenses to take advantage. Not what you expected? Use your plan vs. actual analysis to make the best changes.

7.   Having a plan means you have to follow it (false)

There is no virtue whatsoever in just sticking to a plan because you have a plan. It has to make business sense. Good business planning is about a bare-bones plan and tracking with review and revision to make it useful.

When things change, your plan changes. The benefit is in the tracking and information that serves like a dashboard, helping you manage the change and make adjustments.

8. All business plans need market research (false)

I read and review lots of business plans from mature businesses that don’t include fancy market research. Business owners have to know their market, and taking a step back to review your market is a good idea. But with good planning process in a business, you can stay on top of your market. You don’t need to include market research in every version of your business plan.

Only in special cases will you need market research to prove your market to outsiders. For example, startups looking for investment, or businesses applying for loans, might need market research. Mature businesses know their market and plan without the research requirement.

9. Investors don’t read business plans (only half true)

I was in an angel investment group for eight years. We didn’t read business plans for all the proposals that came in. We rejected many on the basis of summaries alone. For those that interested us, we invited them to present their pitch decks. From there, we narrowed the list down further.

For those that remained, the business plan was a vital part of due diligence. And for all of them, they should have had their bare-bones business plans made before they wrote their summaries and pitch decks. Without the business plan, the pitch and the summary are like movies made without scripts. Ultimately, seeking investors without a plan doesn’t work.

10. Nobody needs a business plan

Does every business need a plan, strictly speaking? No. But every business would benefit from good business planning.

People, even experts, still say nobody needs a business plan, but only because they are locked into the decades-old mentality of the big business plan document. If we redefine the business plan the way it should be, as a flexible record of key strategy points, tactics, milestones, and essential numbers, then all those experts would agree with me – that every business deserves a business plan.

On Saying No, Lean Planning, Brands, and What Could Happen

Self Promotion, ,

I haven’t posted here yet this week in part because I’ve been distracted with posts elsewhere. One of them is about the value of saying no in sales, one is a refresher on fundamentals of lean planning, one is looking at the future of brand marketing and content, and the fourth is a pure fiction riff on current events. OPEN forum on saying no

  1. My post Why Saying no can be a Great Sales Tool appeared today on the American Express OPEN forum. With a wave at “flim-flam” sales, long-term success in sales is about listening and matching what the customer needs to what you offer. The secret is that sometimes you have to say no because you don’t really have something to sell that will solve the problem; and in that case, saying no is better than trying to win the sale that will produce a disappointed customer.
  2. My post Fundamentals of Lean Business Planning appeared yesterday on the Small Business Administration (SBA) Managing a Business blog. My readers here will be familiar with these fundamentals. I have a series of related posts already here on this blog. My favorite is The Lean Business Plan as Dashboard and GPS.
  3. My post Adobe’s Loni Stark on the Future of Brands appeared yesterday on the Rebelmouse blog. Stark is senior director of strategy & product marketing at Adobe. She talked about the future of brands as content marketing becomes faster, better, and much more competitive.
  4. I posted It’s Only Twitter: What Could Happen on Medium yesterday. This one is off my beaten track, not the kind of thing I post on this blog. It’s a pure-fiction imagination of a moment that might have happened seven years ago, related to the current presidential election.

A Simple Cash Flow Spreadsheet Anybody Can Use

Back to Fundamentals, Lean Business Plan, Planning Fundamentals

If there’s just one formal business skill every business owner should have, it’s understanding and forecasting cash flow. It’s not intuitive because it’s not the same as profits; but it’s vital. We spend cash, not profits. It’s one of the most important pieces of every lean business plan.

Here’s my recommendation for a relatively simple way to lay out cash flow in a spreadsheet, so you can see it. It doesn’t take a CPA or an MBA to do it … just knowing your own business. (Note: you can click on the image to see it full size, and you can find more variations with this search on the lean business plan site.)

Simple Cash Flow Spreadsheet

Do Your Numbers

Making Your Estimates

  1. In lines 3 and 4, you forecast the revenue from sales. Yours might be just cash sales, a single line. If you have sales on account, you know it. If you’re not sure (maybe you’re looking at a startup so you don’t have the experience yet), assume you do have sales on account if you sell to other businesses; and probably not if you sell to consumers. Line 4 is your prediction for when the business customers will pay invoices.
  2. The ‘Start’ column reflects the starting balances and starting funding for a startup. With an ongoing business, you might have that balance labeled ‘Dec’ for the ending month of the previous year. In this example, the startup owner borrows $55,000 and gets $25,000 as new investment.
  3. Lines 5 and 6 are important because new money from loans and investments doesn’t show up in your profits, but it’s there.
  4. That whole block of rows 3-6 is a simplification. You know your business. Where else does money come in? Maybe you’re selling assets too? Stay flexible. Take this simple example as just that, an example. Make yours specific to your business.
  5. Rows 9-10 are also simplified. Use as many rows as you want to estimate operating expenses, focusing mainly on fixed costs, rent, utilities, and payroll.
  6. Row 11 is there to make the point that cash flow counts what you spend for inventory and other direct costs of sales, when you spend it – not when it shows up in profit and loss. When a bookstore spends $10,000 in November to buy books to sell, those books might not show up in profits (as cost of goods sold) until December, January, or beyond … but that money leaves your bank in November. So you put it into your cash flow in November. If you don’t sell products, and don’t deal with inventory, then you might have a row for direct costs such as hosting, or customer service.
  7. Row 12 is there because most businesses pay a lot of expenses at the end of the month, or 30-45 days after received. For example, the ad you place might come through as an invoice that you’ll pay later. Row 12 is for all those things you pay later. And, just in case you’re keeping track, these are expenses, including tax and interest. The projected interest on that $55,000 loan is included there.
  8. Rows 13 and 14 show two items that are often forgotten in cash flow planning. Principal payments on debts, and buying new assets, don’t show up in profit and loss. But they cost money that goes out of your bank account.

Simple Calculations

As you can see in the illustration, row 7 sums the money coming in, row 15 sums the money going out, row 16 shows the cash flow for the month, and row 17 shows the projected cash balance. You can see from the illustration how the cash flow is the change in the cash balance, and the cash balance is the equivalent of checking account balance; it’s how much money you have.

They Key is Using it Right

First, tailor your cash plan to match the actual details of your business. This is a very simple example. Be flexible about adjusting it so it matches your business, and your bookkeeping,

Second, using it correctly requires keeping it up to date. Review it every month. Calculate the differences between what you expected and what actually happened, and make adjustments.

You never guess right. And this is all guessing. What matters is watching carefully and updating so you can react to changes in time.

Like all business planning, the value is in the decision. The business value of cash planning is the decisions it causes.

(Ed note: I’m reposting here from my post yesterday on the SBA.gov Industry Word blog: A Simple Cash Flow Spreadsheet Anybody Can Use)

10 Benefits of Business Planning for All Businesses

Management, , ,

(Note: I posted this Wednesday on the Small Business Administration’s Industry Word blog, where I am a guest expert. I’m reposting it here because it seems appropriate. Click here for the original.)

SBA-10-benefits-smallerIt’s a shame that so many people think business plans are just for startups, or to back up loan applications, or for getting investors. The truth is that business planning offers serious benefits for everybody in business.

And I’d like to point out that none of these benefits require a big formal business plan document. A lean business plan (as in What Business Plan Type is Best for Me) is usually enough. It takes an hour or two to do the first plan, then just an hour or two to review and revise monthly.

Here are those top ten benefits.

  1. See the whole business. Business planning done right connects the dots in your business so you get a better picture of the whole. Strategy is supposed to relate to tactics with strategic alignment. Does that show up in your plan? Do your sales connect to your sales and marketing expenses? Are your products right for your target market? Are you covering costs including long-term fixed costs, product development, and working capital needs as well? Take a step back and look at the larger picture.
  2. Strategic Focus. Startups and small business need to focus on their special identities, their target markets, and their products or services tailored to match.
  3. Set priorities. You can’t do everything. Business planning helps you keep track of the right things, and the most important things. Allocate your time, effort, and resources strategically.
  4. Manage change. With good planning process you regularly review assumptions, track progress, and catch new developments so you can adjust. Plan vs. actual analysis is a dashboard, and adjusting the plan is steering.
  5. Develop accountability. Good planning process sets expectations and tracks results. It’s a tool for regular review of what’s expected and what happened. Good work shows up. Disappointments show up too. A well-run monthly plan review with plan vs. actual included becomes an impromptu review of tasks and accomplishments.
  6. Manage cash. Good business planning connects the dots in cash flow. Sometimes just watching profits is enough. But when sales on account, physical products, purchasing assets, or repaying debts are involved, cash flow takes planning and management. Profitable businesses suffer when slow-paying clients or too much inventory constipate cash flow. A plan helps you see the problem and adjust to it.
  7. Strategic alignment. Does your day-to-day work fit with your main business tactics? Do those tactics match your strategy? If so, you have strategic alignment. If not, the business planning will bring up the hidden mismatches. For example, if you run a gourmet restaurant that has a drive-through window, you’re out of alignment.
  8. Milestones. Good business planning sets milestones you can work towards. These are key goals you want to achieve, like reaching a defined sales level, hiring that sales manager, or opening the new location. We’re human. We work better when we have visible goals we can work towards.
  9. Metrics. Put your performance indicators and numbers to track into a business plan where you can see them monthly in the plan review meeting. Figure out the numbers that matter. Sales and expenses usually do, but there are also calls, trips, seminars, web traffic, conversion rates, returns, and so forth. Use your business planning to define and track the key metrics.
  10. Realistic regular reminders to keep on track. We all want to do everything for our customers, but sometimes we need to push back to maintain quality and strategic focus. It’s hard, during the heat of the everyday routine, to remember the priorities and focus. The business planning process becomes a regular reminder.

My Business Planning Tutorials as Online Video on SBA.GOV site

Business Planning,

I’m proud that my online video tutorials on business planning are now posted on the community.sba.gov site where they are available to all, and fee, and I do hope useful.  Here’s the list. You can take them one at a time — about 5-10 minutes each — in the original order, or pick and choose.

business_planning_tutorials.jpg

  1. Introduction and orientation (2:12)
  2. Planning is modular (1:26) Think of the plan as a collection of connected blocks. Start anywhere. Get going.
  3. Form follows function (4:45) How big, what format, what’s included, what platform … it all depends on the specific business use of this plan. Most of them stay loosely connected on a network. Only a minority need to be edited, polished, and printed onto paper.
  4. Planning is management (1:20)  Planning should become management and better business, long-term progress towards goals, prioritizing, and focus; but you have to do it. It’s up to you to make your planning work. It’s not really about the plan, per se; it’s about the discipline to use the plan to run the business.
  5. Planning your strategy (8:04) Strategy is the heart of the plan, which is also the heart of the business. It is made up of a group of three core concepts that can’t be separated: market, identity, and focus. Don’t pull them apart. It’s the interrelationship between them that drives your business.
  6. Business plan flesh and bones (10:25) I like to think of defining flesh and bones as setting the steps. You have a strategy, you’ve got the heart of your business settled, but you want to set it down into concrete steps you can follow and track.
  7. Sales forecast (3 videos, 4:51, 3:10, and 9:27) Your sales forecast is the backbone of your business plan. People measure a business and its growth by sales, and your sales forecast sets the standard for expenses, profits and growth. The sales forecast is almost always going to be the first set of numbers you’ll track for plan vs. actual use. This is what you’ll do even if you do no other numbers.
  8. Dress and grow your plan (12:15)  As your company grows, your planning grows. As you grow, if you add people to your team, then you want to bring them into the process, and make sure you’re on the same page. You bring in skills. The business gets more complex as it grows. Cash flow gets more sophisticated. You start to manage the money and administration differently.
  9. The formal business plan document (3 videos, 5:39, 8:48, 2:26) You don’t necessarily need to have a standard, traditional, formal business plan. Until you really need to show a plan to some outsider who needs, wants, or expects the full formal plan, you can just use your plan-as-you-go plan to reap the benefits and avoid the hassle of the document. However, there are business reasons that force you to produce the traditional plan document. We call these business plan events. The more common business plan events are related to seeking loans or investments. Ironically, the bank loan manager, angel investor, or venture capitalist may not read your plan, but most of them want to know you have one, which means they want it to appear in their inbox or on their desk.

For better or worse, aside from these there are a lot of older tutorials with me talking, and me narrating slides, on YouTube and elsewhere. These were done more recently. They are based on my plan-as-you-go idea for the next generation of business plan, which is the first step in business planning. Planning is about results, lean, agile, flexible, and intended to manage change. It’s the planning, not the plan, that matters. And the plan — what’s going to happen, when, who’s responsible, how much, dates, deadlines, etc. — that matters, not the document.

I hope you find these tutorials useful.

5 Good Posts for Friday July 1

Blogs and blogging, Weblogs, , , , , , , , , , , , ,

I need your help: Can you suggest a way to give a theme and a title to a series of Friday posts listing good posts and recommended links I’ve seen from the last week? My title here is too dull. I’m not nearly good enough at titles.

I don’t want to do this every Friday, but this is the fifth time since April 1, so I’m thinking maybe I should make it a repeated theme, with a cool title. Except I don’t have the title.

  • My absolute favorite this week is Megan Berry’s post on Mashable called 7 Tips for Better Twitter Chats. It’s a very good short piece on the step-by-step details of doing a twitter chat. Megan’s marketing manager at Klout (and yes, one of my daughters).
  • Shashi Bellamkonda of Network Solutions, alias the swami of social media, posted 6 Ways to Improve Your Online Content on the Amex OPEN Forum. Shashi knows. He practices what he preaches.
  • The SBA (U.S. Small Business Administration) has an excellent short piece explaining why you need a business plan on SBA.gov. It’s not a blog post published this week, but SBA.gov tweeted it this week, which caught my attention.
  • Fred Cavazza, Why a Facebook Page is Not Enough forbes.com. I caught this one thanks to Becky McRay mentioning it on twitter.
  • The TED blog posted The 20 most-watched TED Talks (so far). How can you resist this best-of-the-best list from the amazing collection at TED.Com. Trivia question answer: TED stands for technology, education, and design.
  • (Aside: yes, I know, this is the sixth, but I can’t resist) Steve King had some fascinating demographics in his Comparing Small Business Owners and High-Growth Entrepreneurs on Small Biz Labs. 

The Brand New SBA iPhone App is Released

Entrepreneurship, Starting a Business, Web/Tech, ,

I try not to talk about my company or its products too often on this blog, not because I’m not proud of both, but because a little bit of that goes a very long way.

Still, today, I’m proud to post here about the release of the Small Business Administration (SBA) new SBA iPhone app, shown here. It was developed by Palo Alto Software as a donation to the SBA, our way of trying to help small business. SBA Administrator Karen Mills called it…

… another example of the steps we are taking to do a better job of connecting entrepreneurs and small business owners with the tools to help them start or grow their businesses and create jobs.

(You can click on the image to go to the iTunes download page)

The mobile app will help users connect with SBA district office staff and SBA-affiliated counselors and mentors who can provide free, personalized small business assistance. The user-friendly format of the app will help answer questions such as: How do I start a business? Where can I go in my area to get free help with writing a business plan? And where do I begin finding funding for my business?

The SBA mobile app also features a built-in startup cost calculator to help estimate the costs associated with getting a business off the ground, plus an SBA partner locator to help users find SBA offices, Small Business Development Centers, Women’s Business Centers and SCORE.

We’ve been working with the SBA for more than 15 years, through three presidential administrations. One constant there is a lot of people working hard to promote small business through not just the well-known loan programs, but education, information, and a whole lot of problem solving in the front lines. The sba.gov website, with a clean new look introduced less than six months ago, is still the first line of information on small business in this country. And I’m personally very happy to say so.